Nexen Inc. has sold a stable of heavy oil properties for nearly $1-billion, as Calgary's thirst for oil continues to lift the value of even old assets.
Northern Blizzard Resources Inc. will buy Nexen's heavy-oil assets in Western Canada for $975-million as Nexen moves to prune its portfolio and focus on oil sands, shale gas and offshore crude.
The deal values the assets, which are currently producing 16,100 barrels of oil equivalent per day, roughly 20 to 30 per cent higher than the average price fetched for such lands in recent months, investment bankers said Wednesday.
Oil properties continue to garner strong interest from investors as natural gas prices linger at low levels. Heavy oil properties in particular have become more attractive as U.S. refiners, facing falling supply from Venezuelan and Mexican sources, bid up the price for the thicker crude, which has historically traded at much greater discounts to light oil.
"We're very pleased with where we've ended up. It gives us an opportunity to redeploy capital from non-core areas into core areas," said Pierre Alvarez, vice-president of corporate relations at Nexen.
Nexen had announced plans to shed $1-billion in non-core assets this year; it now believes it will bring in $1.5-billion as it works to also sell its interest in Canexus Income Fund.
Northern Blizzard is a new company, formed four months ago by Natural Gas Partners of Irving, Tex., that manages a $7.2-billion family of funds. Although the Nexen lands are relatively mature - an industry term for nearing their expiry date - Northern Blizzard was drawn to the Nexen lands by how much oil they still contain.
"There's three-billion barrels of oil in place at 800 metres with less than 9 per cent recovery to date," said Northern Blizzard chief executive officer John Rooney. "These are world-class legacy assets that are very rare."
In its bid to produce oil from other parts of its portfolio, Nexen had invested little money in the heavy oil properties.
Although Northern Blizzard, a private company, declined to shed light on its plans, companies can typically produce just 5 to 25 per cent of the crude on heavy oil properties using traditional drilling methods. Newer techniques - some of which use underground injections of steam, a method also used in the oil sands - can bring those rates to nearly 50 per cent. Nexen had made little use of those techniques.
Mr. Rooney declined to comment on what methods Northern Blizzard plans to employ, except to say that he does not believe the lands are nearing the end of their life. "I don't want to get into the details of our business plan, but obviously we don't think so. We spent a billion dollars getting here."
The revival of old Western oil fields has created enormous interest in the past year, as companies employ new technologies to extract huge quantities of oil once considered impossible to tap.
Scotia Waterous was the sole adviser on the Nexen deal.